Coffee prices have been high this year, largely because there is barely enough supply to meet demand.

Starbucks CEO Howard Schultz, whose company buys a lot of coffee and derivatives to hedge against rising coffee prices, recently blamed the high prices on speculators. "There is zero, let me repeat, zero shortage of coffee and there is no demand problem," he said.

Analysts at VM Group, part of the Dutch bank ABN Amro, called him on it.

"It is not speculators, or at least not speculators alone" causing the price of New York arabica beans to rise 50 percent over the past six months, VM Group said, according to a story by AgriMoney.com.

Coffee supplies are low enough to keep prices high for a long time, particularly given rising demand, the story quoted Michael Neumann, chairman of coffee trader Neumann Kaffee, as saying.

"Prices over the next decade look like rising steadily... demand over the long term looks like easily outstripping supply in both arabica and robusta [beans]," VM Group said, adding that it would "prefer trusting the judgement of a coffee traded rather than a coffee retailer."

PHOTO CREDIT: ERIKA SCHULTZ/THE SEATTLE TIMES; Seasonal coffee workers unload baskets of coffee cherries into a transport truck at Santa Eduviges in Costa Rica.

The last time coffee prices rose as fast as they have lately was in early 2005, and arabica coffee subsequently dropped 38 percent in six months, Bloomberg reports in a comprehensive look at the recent run-up in coffee prices.

Prices remain skittish, because stockpiles are low. But arabica supplies could exceed demand by 6.7 million bags for the year ahead, ABN Amro Bank NV and VM Group predicts.

Vince Byrd, president of Ohio-based Smucker's coffee business, which has raised prices for its Folger's and Dunkin' Donuts brands, said the rally has been driven more by hedge funds than supply issues, Bloomberg reported.

Not everything looks rosy for next year's harvest. In Colombia, coffee could continue to suffer from the worst outbreak of fungus in a quarter century that was brought on by wet weather, Bloomberg reported.

The International Coffee Organization predicted last month that short-term coffee supplies are the biggest mover for prices. A large crop is expected from Brazil and a number of countries will return to normal production levels, ICO said. Total production for the crop year just ending will be about 120 million bags, down 6.6 percent.

In the coming crop year, ICO predicts production of 133 to 135 million bags.

Climate problems are expected to hurt Mexico and other countries in central America, and possibly Colombia, ICO executive director Nestor Osorio wrote. "The situation is not much different in Vietnam, where the combined effects of climate change and the El Nino phenomenon are threatening agricultural production, including coffee."

Sen. Chuck Schumer of New York has called on the Obama administration "to squeeze leading coffee-producing countries such as Vietnam and Brazil into not stockpiling supplies and jacking up prices even more," The New York Daily News reported.

"'Stockpiling by the two largest producer countries would have adverse economic consequences for importing countries, as well as for consumers around the world,'" Schumer wrote in a letter Monday to U.S. Trade Representative Ron Kirk.

Here's the International Coffee Organization's chart of coffee prices going back to 1998. In July and August, it was at $1.53 and $1.57, higher than it's ever been.

Coffee prices are spiking because of a coffee shortage that has been percolating for years. Crops are down in many producing countries, and increasing demand is chewing through existing stockpiles.

About half of the green coffee that spins and pops in Mark Barany's roaster in Bellevue comes from farms he knows. Barany (in photo by Seattle Times photographer Steve Ringman) has not visited them yet. His roastery and Seattle cafe, Kuma Coffee, are just a few years old and do not throw off lots of cash and free time for trips abroad.

He meets farmers online, and if their coffee sounds like a fit, they send samples. Then he draws up contracts to pay them and finds an importer who charges another 30 to 50 cents a pound to move the beans from Central America to Puget Sound.

It takes time and work, but Barany considers the effort worthwhile, because he is paying farmers what their coffee is worth and cutting out the middlemen.

If that sounds like Fair Trade, think again.

Barany and a growing group of coffee roasters have become disenchanted with the Fair Trade model and think they can do better. Known as direct trade, their movement is small and does not having uniform definitions or guidelines. Customers often have to take the roaster's word for it that growers were paid fairly.

They crave greater legitimacy, and for that reason a handful - including Barany - have publicly disclosed the prices they pay for coffee.

Check out the highlights of a brewing battle between Fair Trade and direct trade in a story I wrote for Friday's paper. I didn't include a lot of details and arguments from both sides, so please voice your opinion, set me straight, whatever needs to be done to keep this discussion going.

Arabica coffee futures rose 11 percent last week, their biggest gain since 2006, Bloomberg reported. But they're down this week on speculation that a boom crop in Brazil will remedy the low worldwide inventories that have kept arabica prices high this year.

The U.S. government said it's going to be a big year for Brazil, the world's largest grower of arabica coffee. Farms there started harvesting early because of unexpectedly rainy weather last summer. The coffee also ripened unevenly, raising questions about its quality.

Output from Colombia, the second-largest supplier, will remain below its five-year average, Commerzbank AG wrote in a report that Bloomberg quoted.

A Baltimore shop called Spro is selling a 12-ounce cup of coffee for $13, CNN reports. It's Aida's Grand Reserve from El Salvador, and I'm sure it's good, just like the $9 cup of coffee from Hacienda La Esmeralda of Panama that Cafe Grumpy offered in Brooklyn.

But what's up with these prices? Others have served coffee that's just as good for less. Fonte Coffee Roaster in Seattle sold one of the world's most divine coffees -- La Esmeralda Geisha -- at its usual $2.26 price for 16 ounces of brewed coffee last year. (To be fair, the beans were steep at $49.95 a half pound with proceeds going to the Pike Place Market Foundation.) Paul Odom, Fonte's owner, said it broke even on the Geisha by the cup. "You wouldn't want to do that every day for the rest of your life," he said.

But $13? How much would you pay for an excellent cup?

Thanks to David Carlos and CoffeeTalk's Daily Dose for the CNN link.

People are finally buying lattes again, which Safeway CEO Steven Burd takes sees as a ray of economic light.

When the recession started, shoppers shifted from lattes to regular coffee, and they started buying less expensive wine. Now premium wines are on the upswing, he said, and "it's early, but we're seeing a trend back to lattes."

To Burd, whose company just posted another quarterly profit drop, the shift "suggests to me that we're at, or near, the bottom of this whole thing and that would be good for all of us if that's true."

By the way, who's had a Safeway latte? Any good?

Update 10/15/09: Safeway spokesman Brian Dowling said Safeway sells lattes mostly through its in-store Starbucks.

Regular readers of this blog know there are a lot of ins and a lot of outs to the story I wrote for today's paper.

I didn't touch on coffee commodity prices, for example, because even though they're down from last year, they're up since the coffee harvest earlier this year -- and a lot of roasters and coffee shops don't buy from the New York Board of Trade's "C" market anyway.

I'm also hearing that the situation in Ethiopia continues to affect prices, although local roasters are getting coffee from there now.

I thought Matt Milletto's breakdown of latte prices (right) was really interesting.

He also did a breakdown for a 12-ounce brewed coffee, which has about 40 cents of coffee, 10 cents of cream (optional), 15 cents for the cup, lid and stirrer and a narrower profit margin.

What do you think about coffeehouse prices?

And it's not Starbucks, whose previously announced price changes reached Seattle this week and include a 20-cent hike on 16-ounce Americanos at some stores. (Grammar relief of the week: It's okay to use "whose" in this case, just as it's okay to split verbs.)

This week's defender of price hikes is Sebastian Simsch, co-owner of Seattle Coffee Works (pictured), whose blog post directly addresses recent grousing about price hikes by Michael Allen Smith, the organizer for the Coffee Club of Seattle.

Seattle Coffee Works raised the price of its Seattle Space Espresso Blend by 50 cents to $13.45 a pound because, Simsch wrote, "we use a large percentage of coffee from East Africa in this blend, and simply put that coffee has gotten 20-30% more expensive during this past year. Our modest price increase doesn't go very far to cover that increase."

Simsch also discusses overhead costs for small roasters versus big roasters versus grocery stores, and promises he's not getting rich.

"If our prices were so high as to actually make us some serious money, you would likely find us lounging on the beach rather than in downtown Seattle," he writes.

Krispy Kreme stores in the Pacific Northwest sold 229 percent more cups of coffee last week than they did the week before they launched a Depression-inspired promotion last fall.

Dropping prices from $1.45 to a nickel (small/12 oz.), $1.65 to a dime (medium/16 oz.) and $1.75 to 15 cents (large/20 oz.) has brought in more customers, and Krispy Kreme says they're buying doughnuts (99 cents for an original glazed), too.

"It's our way of giving people something to feel good about at a time when people need something to feel good about," said Gerard Centioli, CEO of Icon LLC in Seattle, which co-owns (with Krispy Kreme) 12 stores in the Northwest and Hawaii. There are two in Seattle and one in Issaquah.

The "new deals" -- which began with the nickel coffee last October and expanded to include 15 cents for a large drip coffee earlier this month -- were inspired by Krispy Kreme's Depression roots. When the company started in 1937, it charged a nickel for a cup of coffee.

Centioli says they'll keep the coffee bargains going "for as long as we can afford to do it."

"We don't make money on this coffee at these prices, but people come in and also buy doughtnuts," he said.

Unlike Dunkin' Donuts, he said, Krispy Kreme does not rely on its coffee for much income. "The lion's share of our sales is doughnuts. Our typical customer buys a dozen doughnuts or more."

Krispy Kreme is a publicly traded company based in North Carolina, where it also roasts the coffee. A slew of its U.S. stores closed a few years ago after the company grew too fast and got into legal trouble, which led to a $783,000 SEC fine for three former executives this month.

PHOTO: KRISPY KREME

A map to Krispy Kreme's Seattle-area stores:

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Ethiopia closed the warehouses of its six largest coffee exporters, accusing them of hoarding the crop as they wait for prices to rise, Bloomberg reported.

Ethiopian Prime Minister Meles Zenawi warned last week that the government would "seize the coffee if it wasn't sold immediately," Bloomberg's Jason McLure reported.

Coffee is Ethiopia's biggest export, making it key to the country's struggling economy. Its coffee exports declined more than 10 percent in the first eight months of the country's fiscal year, which began July 8.

"We haven't hoarded anything," Yismashewa Seyoum, the commercial manager of Seid Yassin Pvt. Ltd., told Bloomberg. "We have proof that we haven't been hoarding so we are confident that the ban will be lifted."

The New York Times elaborated on the problem, saying that in December, the Ethiopian government "mandated that all coffee growers sell their crops through the Ethiopian Commodity Exchange, to insure that all beans fetched an adequate price. Some antipoverty groups thought this would help all Ethiopiain coffee growers."

It also means that U.S. importers can't buy directly from the growers they prefer.

That could be a big deal to Starbucks, which has delayed the opening of its farmer support center in Ethiopia.